What is an ELSS fund?
An Equity Linked Savings Scheme (ELSS) is a diversified equity mutual fund with a 3-year lock-in. Investments up to ₹1.5 lakh per financial year qualify for a deduction under Section 80C of the Income Tax Act (in the old regime). Compared to other 80C options, PPF locks money for 15 years and tax-saver FDs for 5. ELSS is the shortest, with the highest expected long-term return and the highest volatility.
If you are in the 30% bracket and invest the full ₹1.5 lakh in an ELSS for the year, you save ₹46,800 in tax (including cess). Assuming a 12% return, the ₹1.5 lakh grows to roughly ₹2.1 lakh by the end of the lock-in. Net of the upfront tax saving, your effective return is materially higher than the headline.
Choosing ELSS while on the new tax regime. The new regime does not allow most 80C deductions. If you have switched, ELSS loses its tax angle and becomes just another equity fund. Pick on merit, not habit.
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